Monday, February 14, 2011

Considering Looking at Long Term Costs in Budgeting Rather Than Simply the Original Price of a Project

Too often when elected officials approve infrastructure projects they do not plan for the long-term cost (the life cycle budget), which leads to wasteful spending at all levels of government. Current infrastructure projects frequently are not cost-effective and often lead to crumbling infrastructure.

Ultimately these projects become more expensive to repair and maintain. If they were constructed and priced out correctly from the beginning (looking at the entire cost of the initial project, including the maintenance and repairs in the future) we would have a better idea of the costs and benefits in the long term instead of the original price of the project. In the long run this type of budgeting would save taxpayers money.

A road, for example, is not simply a road. Does it pass through higher elevations where we can expect more stress and wear from freezing temperatures and more salt treatments? Will it have more wear and tear because of its proximity to industrial areas that will require a lot more truck traffic? How many bridges will be built on a long stretch of highway? These factors all go into the long term considerations of cost. When we think about these issues, we might be able to even come up with alternative specifics that could cost more in the short term, but pay off over time.

A lack of transparency in infrastructure spending is creating budgetary uncertainty, which only furthers the fiscal challenges facing state officials. This kind of shortsighted infrastructure budgeting is jeopardizing economic growth

Congressman Nick Rahall (Democrat-WV03) should consider this new way to look at the funding of infrastructure projects. Below are a couple of examples where government leaders have scrapped projects or hidden the true cost of projects.

— In California, a study conducted by the Sacramento Area Council of Governments found that routine repairs cost roughly $20,000 per mile of road per year. When roads break down, reconstruction is needed, costing up to $2 million per mile per year.

— In New Jersey, Governor Chris Christie canceled a highly publicized transit tunnel project because he discovered the full costs of the project would exceed projections by as much as $5 billion. The tunnel would have eased traffic congestion among commuters in the nation’s most densely populated state.

When we fail to account for the maintenance costs from the start, repairs aren’t paid for and we are forced to spend more on major reconstruction earlier in the life of the road.

Today, we think it is imperative that governments consider the full life cycle cost of any investment it makes. That means not just how much something costs to build, but also how much it costs to operate and maintain decades into the future.

It is worth noting that the Congressional Budget Office reports that life cycle accounting will produce more cost effective infrastructure projects. According to the non-partisan CBO, accounting for the total cost of a project over its life cycle – that is, taking into account the initial costs as well as the long term operation and maintenance costs – is a key to ensuring that infrastructure projects are cost-effective.

With government doing more with less at every level, we urge Rep. Rahall and his colleagues in Congress to adopt this form of budgeting.